What are the disadvantages of a 529 college savings plan?

What are the disadvantages of a 529 college savings plan?

Here are five potential disadvantages of 529 plans that might affect your savings choice.

• There are significant upfront costs.
• Your child’s need-based aid could be reduced.
• There are penalties for noneducational withdrawals.
• There are also penalties for ill-timed withdrawals.
• You have less say over your investments.

Is it worth contributing to a 529?

The 529 College Savings Plan is one of the best ways to save for college. The idea of a 529 College Savings Plan is great: you can contribute money into an account and it will grow tax free to someday pay for your child’s education. And you can contribute a lot of money too (up to $300,000 in most states).

Can I lose money in a 529 plan?

You don’t lose unused money in a 529 plan. The money can still be used for post-secondary education, for another beneficiary who is a qualified family member such as younger siblings, nieces, nephews, or grandchildren, or even for yourself.

When should you stop contributing to 529?

529 college savings plans do not have contribution deadlines. You may contribute to a 529 plan at any time throughout the year, and you do not have to stop making contributions once the beneficiary reaches a certain age.

Does 529 lose value?

When a 529 plan is not the best college savings option?

Funds from a 529 plan that are not used for qualifying college expenses are subject to a 10\% penalty and any gains are taxed at the parent’s marginal tax rate, which can be as high as 37\% for tax year 2020 . If the beneficiary of the 529 plan receives a scholarship, the 10\% penalty is waived.

Can you buy stocks in 529 plans?

The law establishing 529 plans prohibits account owners and beneficiaries from directing the investment of their funds, other than choosing an investment portfolio. As a result, college savings plans don’t offer individual stocks, as they can’t act as brokers for account owners.

Does it matter what state your 529 plan is in?

1. 529 plans are state-sponsored, but you can pick a plan from any state. Most states offer at least one 529 plan. You don’t have to invest in your own state’s plan; though many states offer residents a state tax deduction for doing so, there is no federal tax deduction for 529 contributions.